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Forex Weekly Outlook March 11-15 – UK Brexit votes set to steal the show from US data

The US Dollar was on the march, rising on good and bad news alike. Will this domination continue? Four top-tier US events stand out, but the UK votes on Brexit may take steal the show. Here the highlights for the next week.

The US Dollar enjoyed safe haven flows on the dive in Construction Spending and also enjoyed the upbeat ISM Non-Manufacturing PMI which beat with 59.7 points. The NFP disappointed with only 20K jobs gained after several excellent months, but wage growth continued its acceleration. Trade talks with China are making progress but we still do not see the contours of a deal. Brexit negotiations continue in Brussels, with no success at the moment. The UK wants legally-binding changes to the deal, while the EU is only willing to give “clarifications”. The Bank of Canada made a dovish shift, sending the loonie lower. The Aussie also suffered due to weak GDP. The Aussie also suffered the fresh Chinese growth targets which were set at 6-6.5%. EUR/USD drifted to the downside on USD strength.

US Fed’s Powell talks: During the weekend and Tuesday at 00:00. The Chair of the Federal Reserve speaks in California and then in Washington DC and has the opportunity to respond to the jobs report and provide a hint towards the rate decision in the following week.

US Retail Sales: Monday, 12:30. The data for January is published now, delayed due to the government shutdown. The figures for December were terrible: a drop of 1.2% on the headline, 1.8% in core sales and 1.7% in the control group. The data were so bad, that many doubted them. GDP numbers for Q4 show a better picture of the consumer. A bounce is on the cards now, with the all-important control group set to rise by 0.6%. Perhaps this time, markets will pay closer attention than usual to the revisions for December. The data for January is expected to show stagnation in the headline number and an increase of 1.8% in the core.

UK GDP: Tuesday, 9:30. The UK will now release the monthly GDP figure for January, the first look into 2019. The economy shrank by 0.4% in December, a disappointed that kept Q4 growth depressed. However, the UK economy is still expanding and an increase in monthly GDP is likely now. Manufacturing output is also likely to show a rise after a drop of 0.7% at the end of 2018.

UK votes on Brexit: Tuesday, Wednesday, and Thursday. The UK government is set to bring an amended Brexit deal to vote on March 12th, and it is expected to fail once again. It will be then followed by a vote on a no deal Brexit on March 13th, which is expected to result in Parliament rejecting an exit without an accord. The last vote comes on March 15th, when Parliament is due to instruct the government to seek an extension, probably of three months. The expected delay of Brexit sent the pound higher, but it then retreated as nothing is certain. May may announce that she has no new deal to offer. In addition, the House of Commons could also surprise with a vote in favor of leaving without a deal, a move that will likely devastate the pound. It is going to be a dramatic week.

US inflation: Tuesday, 12:30. Inflation in the US was quite steady in January with the headline rising by 1.6% Year over Year and Core CPI remaining at 2.2%, a healthy rate. A minor slide to 2.1% is on the cards in the report for February. Any deviation may impact the Fed’s “patience”.

Chinese Industrial Production: Thursday, 2:00. Data from the world’s second-largest economy has grown in the importance of late, especially after the authorities set a lower GDP growth forecast. Industrial output rose by 5.7% in January, lower than had been expected. A similar figure is likely now.

Japanese rate decision: Friday, during the morning. The Bank of Japan has been making dovish sounds in reaction to ongoing low inflation. This time will unlikely be different, but no actions are on the cards. The Tokyo-based institution remains the most-dovish central bank in the developed world.

US Consumer Sentiment: Friday, 14:00. Consumer sentiment has been on the back foot in recent months after reaching high levels in 2018. The preliminary version of the University of Michigan’s gauge may now show an increase from 93.8 points reported in the final version for January.